The government is backing a project to install a "communication box" in new cars to track the whereabouts of drivers anywhere in Europe, the Guardian can reveal.

Under the proposals, vehicles will emit a constant "heartbeat" revealing their location, speed and direction of travel. The EU officials behind the plan believe it will significantly reduce road accidents, congestion and carbon emissions. A consortium of manufacturers has indicated that the router device could be installed in all new cars as early as 2013.

However, privacy campaigners warned last night that a European-wide car tracking system would create a system of almost total road surveillance.

Details of the Cooperative Vehicle-Infrastructure Systems (CVIS) project, a £36m EU initiative backed by car manufacturers and the telecoms industry, will be unveiled this year.

But the Guardian has been given unpublished documents detailing the proposed uses for the system. They confirm that it could have profound implications for privacy, enabling cars to be tracked to within a metre - more accurate than current satellite navigation technologies.

The European commission has asked governments to reserve radio frequency on the 5.9 Gigahertz band, essentially setting aside a universal frequency on which CVIS technology will work.

The Department for Transport said there were no current plans to make installation of the technology mandatory. However, those involved in the project describe the UK as one of the main "state backers". Transport for London has also hosted trials of the technology.

The European Data Protection Supervisor will make a formal announcement on the privacy implications of CVIS technology soon. But in a recent speech he said the technology would have "great impact on rights to privacy and data".

Paul Kompfner, who manages CVIS, said governments would have to decide on privacy safeguards. "It is time to start a debate ... so the right legal and privacy framework can be put in place before the technology reaches the market," he said.

The system allows cars to "talk" to one another and the road. A "communication box" behind the dashboard ensures that cars send out "heartbeat" messages every 500 milliseconds through mobile cellular and wireless local area networks, short-range microwave or infrared.

The messages will be picked up by other cars in the vicinity, allowing vehicles to warn each other if they are forced to break hard or swerve to avoid a hazard.

The data is also picked up by detectors at the roadside and mobile phone towers. That enables the road to communicate with cars, allowing for "intelligent" traffic lights to turn green when cars are approaching or gantries on the motorway to announce changes to speed limits.

Data will also be sent to "control centres" that manage traffic, enabling a vastly improved system to monitor and even direct vehicles.

"A traffic controller will know where all vehicles are and even where they are headed," said Kompfner. "That would result in a significant reduction in congestion and replace the need for cameras."

Although the plan is to initially introduce the technology on a voluntary basis, Kompfner conceded that for the system to work it would need widespread uptake. He envisages governments making the technology mandatory for safety reasons.Any system that tracks cars could also be used for speed enforcement or national road tolling.

Roads in the UK are already subject to the closest surveillance of any in the world. Police control a database that is fed information from automatic number plate recognition (ANPR) cameras, and are able to deduce the journeys of as many as 10 million drivers a day. Details are stored for up to five years.

However, the government has been told that ANPR speed camera technology is "inherently limited" with "numerous shortcomings".

Advice to ministers obtained by the Guardian under the Freedom of Information Act advocates upgrading to a more effective car tracking-based system, similar to CVIS technology, but warns such a system could be seen as a "spy in the cab" and "may be regarded as draconian".

Introducing a more benign technology first, the report by transport consultants argues, would "enable potential adverse public reaction to be better managed".

Simon Davies, director of the watchdog Privacy International, said: "The problem is not what the data tells the state, but what happens with interlocking information it already has. If you correlate car tracking data with mobile phone data, which can also track people, there is the potential for an almost infallible surveillance system."